Why Samsung’s Challenge to Apple and Google Is Great for Consumers

Samsung Electronics Co's latest Galaxy S4 phone is seen during its launch at the Radio City Music Hall in New York March 14, 2013. Samsung Electronics Co on Thursday premiered its latest flagship phone, the Galaxy S4, which sports a bigger display and unconventional features such as gesture controls and will spearhead its effort to challenge Apple Inc on its home turf.

Over the past few years, tech giants Apple and Google have emerged as dominant forces in the mobile-technology market. Although they’ve pursued radically different strategies, each company has been wildly successful: Apple generates $1 billion per month on iPhone sales, while Google’s Android operating system has racked up massive global market-share gains. Now, both companies face a rising threat from South Korean electronics titan Samsung, which has surged to become the largest handsetmaker in the world. Samsung appears poised to intensify competition in the mobile space, and that could benefit consumers.

Samsung’s ascent was underscored last week when it introduced its highly anticipated new Galaxy S4 smartphone at an extravagant event at Radio City Music Hall in New York City. The company showed off hands-free eye-tracking technology, among other new features. Google and Apple, meanwhile, are pushing toward next generation wearable computing, including Google Glass and Apple’s rumored iWatch.

In 2012, Samsung eclipsed Apple in global smartphone market share. Samsung had 30.3% of the market, a dramatic increase from 19% in 2011, according to data cited by Reuters. Apple’s 2012 share was 19.1%, up from 18.8% the previous year. In January, Samsung reported a 76% increase in profit, driven in part by strong sales of the company’s Galaxy smartphone and tablet devices. It was Samsung’s fifth consecutive record quarterly profit.

It’s important to remember that Apple accounted for 69% of the smartphone industry’s 2012 profits, compared with Samsung’s 34%, according to Canaccord Genuity analyst T. Michael Walkley, as cited by Forbes. (The total is higher than 100% because of operating losses at BlackBerry, Nokia and Google-owned Motorola Mobility.) Still, as a result of Samsung’s ascent, the mobile landscape is shifting toward a three-way struggle for dominance among Apple, Google and Samsung.

Is Apple feeling the heat? On the eve of the launch, Apple’s marketing chief Phil Schiller gave a pair of interviews in which he blasted Samsung and Android. It was a rare and uncharacteristic preemptive attack on a rival’s impending launch. Speaking to Reuters, Schiller disparaged Android as a “fragmented” platform because updates have to work on dozens of devices and thus get rolled out more slowly than Apple iOS updates. As a result, he said, most Android users are still using software that’s one to two years old.

Schiller pointed to research showing that over half of Apple iOS users are using the latest version of the company’s software, according to the interview. He then went on to cite rumors that the Galaxy S4 would ship with a year-old version of Android. Those rumors, however, turned out to be false because the S4 will, in fact, ship with Android 4.2.2 Jelly Bean, which was released just last month. One well-known pro-Apple blogger called Schiller’s mistake “an unforced error.”

On the widely-read Monday Note blog, former Apple director Jean-Louis Gassée suggested that Apple is losing the p.r. battle with Samsung, in part because Apple is held to a higher media standard thanks to the iPhone’s perch as the world’s most admired smartphone. “Because of its position at the top, Apple should have the grace to not trash its competitors, especially when the digs are humorless and further weakened by error,” Gassée wrote. Of course, Apple has memorably launched ad campaigns mocking its rivals in the past, but Gassée suggested that Schiller’s broadside was, well, déclassé.

The Galaxy S4 received mixed reviews — some called it a “dull” upgrade, others called it a “firm stride forward.” Shortly thereafter, Apple’s marketing team launched a new online campaign touting the iPhone. “There’s iPhone. And then there’s everything else.” For its part, Samsung also launched a new marketing initiative to support the S4, which it is calling a “life companion.”

The dueling ad campaigns highlight the escalating competition between Apple and Samsung. Writing on Fortune.com, Philip Elmer-DeWitt cited the viral success of a S4 YouTube video, which has garnered over 2 million views, to call this round a Samsung win, though he added that’s not a surprise “considering how much money the South Korean manufacturing giant put into it.”

Samsung doesn’t pose a threat only to Apple, however. In recent months there have been reports that Samsung’s surge has been generating agita for Google. It’s an interesting situation because Samsung, Google’s largest Android partner, has been crucial to the success of the search giant’s mobile platform. Samsung sells 4 out of every 10 Android-based devices worldwide. At the Samsung Galaxy S4 launch, it was telling that Android garnered nary a mention.

According to the Wall Street Journal, Google executives are concerned that Samsung could leverage its growing market power and Android influence “to renegotiate their arrangement” and demand a higher percentage of Google’s lucrative mobile-ad business. “There is a threat from Samsung to Google that is real,” Rajeev Chand, a managing director at boutique investment bank Rutberg & Co., recently told the Journal. “Over time, Samsung will be able to leverage its market-share dominance to negotiate better terms from Google.”

As a result, Google is hoping that new Android-based devices from HTC and Hewlett-Packard will serve to tamp down Samsung’s increasing clout in the Android ecosystem, according to the Journal. And former Android chief Andy Rubin, who recently stepped down from that role, has suggested that Google’s recently acquired Motorola Mobility division could also serve as a bulwark against Samsung’s growing market power, the paper said. In particular, Google hopes that Motorola’s rumored “X phone” could serve as a strong competitor to Samsung’s Galaxy line.

Needless to say, the competitive landscape in the mobile space is growing more complicated. Despite its recent stock slump, Apple continues to produce the most admired mobile products in the world and still commands 70% of all smartphone-industry profits. Google’s Android operating system dominates the global mobile-software market. And now, both Apple and Google face a growing challenge from Samsung, which is moving aggressively to capitalize on its new position as the global handset leader. Ultimately, more competition means more innovation, and with three powerful giants in the mobile mix, competition in the smartphone and tablet markets could accelerate — and that’s something that consumers should cheer.

"" I think there's a large misconception about what it takes to build a good enough search engine. I've tried many of the major search engines and they do a pretty good job. Ninety percent of the time, searches are not missile surgery. The top two or three entries do the trick.

The mystique of Google search used to be attached to OSes before they became commoditized. I remember ten or so years ago an article saying it would take Apple a billion bucks a year just to keep revising its OS. And that's when Apple was only making a billion a year, if that. Today good enough OSes are like weeds.

That's why Apple added lots of services to it OS product. And that's why Google added lots of services to its search product. Unfortunately for Google, bit chunks of search are no longer employing Google search: Facebook, Apple services, Amazon, Twitter. And it's only going to get worse"

@stefn There is a large misconception about what it takes to build a search engine. If search engines were so easy to build every company would have them. The reality is the algorithms are incredibility complex and Google's has been enhanced continually for well over a decade. If building a successful search engine is too much for a company like Apple to take develop what chance does a hardware company like Samsung with no software experience have against Google in this space?

@stefn These are good points but a few things to consider. The only real competitor to Google's search thus far has been Bing, but Bing is costing Microsoft billions. The algorithms to run search are not the only variable as the engineering to make it profitable is equally important. And no one comes close to Google in that.

I am not suggesting no one can ever compete in the search arena, but there is a reason few can. Facebook's attempts have been horrendous. They have yet to even accomplish a search function to permit a user to search his/her own content, let alone most of the content on the network.

Amazon's search is only viable when searching for products within its site. Try searching for something a little more complex and Amazon's search functionality is suddenly shown to be incredibly weak. Try searching for a particular review on a book. You can't because Amazon's search is incapable of handling it.

Look at Apple's attempt with Siri. Its best attempts to search anything are topographical Ask it a complex question and it falls to pieces.

Now compare this to searching for something on Gmail. You can search emails by date, by keywords, by who it was sent to, by an assortment of things. The search is incredibly seamless but more importantly able to handle complex searches that others cannot. The same can be said for searching content on G+. Now consider Google search which is tied into Maps and you begin to understand why its so hard to duplicate their efforts.

There is a reason Google is leading in search that is not obvious to the layman, and its because its exceptionally difficult to produce and monetize comprehensive search functionalities. Maybe some other company will come along take Google's place as king of search, but its not looking like it will be Facebook, Amazon, Apple, and certainly not Samsung.

@marcellorazia I think there's a large misconception about what it takes to build a good enough search engine. I've tried many of the major search engines and they do a pretty good job. Ninety percent of the time, searches are not missile surgery. The top two or three entries do the trick.

The mystique of Google search used to be attached to OSes before they became commoditized. I remember ten or so years ago an article saying it would take Apple a billion bucks a year just to keep revising its OS. And that's when Apple was only making a billion a year, if that. Today good enough OSes are like weeds.

That's why Apple added lots of services to it OS product. And that's why Google added lots of services to its search product. Unfortunately for Google, bit chunks of search are no longer employing Google search: Facebook, Apple services, Amazon, Twitter. And it's only going to get worse.

@stefn you clearly have misunderstood what free means here... samsung can't take android without the google services.. as long as the google services are on their devices, google doesnt care what samsung does with it.

@ukjbActually it's your misunderstanding, not mine. Amazon forked Android and didn't adopt Google services. One third of Android devices are in China and do not use Google services. Samsung will fork or flee Android, believe it. Samsung wants to be Apple, not a Google lackey.

Samsung is more of a threat to Google than Apple. For one, the bulk of Android enthusiasts are Samsung users because of the lack of quality and innovation from other handset makers. And two, in another year or two, Samsung will have their tizen OS on new devices, eliminating the use for android.

@spear_randy I disagree. I got the S3 because it was the best Android phone out there, not because it was Samsung. If Sony or some other maker made a better Android phone in the future I'd have no issue switching to another phone. Yet if Samsung dumped Android I'd dump Samsung.

It would be nice if that were true but sony makes beautiful devices with 2 year old OS's, HTC lacks innovation and quality. Really it just nexus devices that are the alternative and even those have their hardware limitations. Samsung has nice hardware, current OS and beautiful software (ex. touchwiz). Also, who's to say google doesn't put their priorities in motorola once the conditions of their acquisition are met. In general, android has its flaws just like iOS but if Samsung has complete control over it's Tizen project then consumers will be presented with more options and competition. (this is the route nokia should have stayed on)

@marcellorazia i think most people are stupid and they don't buy phones for the OS... i think the iPhone got boring to people and they looked at number 2 (samsung) because they were advertising machines... i think if they try a bait and switch on people by releasing a phone with their own OS, and if it's not as good as previous android devices, we will see another huge shift (maybe that's when blackberry or windows phone start taking up market share)

i hate to say it, but htc has fallen off the map, google doesn't want to use moto to unilaterally take over the android hardware market, but long term, it might be a better idea if samsung wants to ditch android or muscle in for some more ad dollars... of course, if this is just a rumor from the hype machine then there's no need to do anything because samsung/google is a match made in heaven right now.

@spear_randy What is more likely, Samsung develops the top OS (despite having no software success) or that Sony, Motorola, HTC and other Android run manufactures catch up to Samsung's hardware? I'll put my money on Sony. Not only that, it would take a lot more than simply developing a workable OS, it woudl have to be significnalty better than Android I'm not tied to Android because its such an incredible OS, I am tied because I am fully immersed in the Google ecosystem with Maps, Docs, Now, BLogger, G+, Youtube, Gmail, Chrome, etc.